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Press Release

Tech Bytes - Tid Bits in Tech News: “Innovative Regulation” in the DTV Market—A new Name for Centralized Planning

The contemporary defense of centralized economic planning revolves around the concept of “innovative regulation.” The idea is that omniscient regulatory bodies should dictate private investment and business decisions. This regulation attempts to use market forces in limited doses and under contrived circumstances to arrive at predetermined outcomes.

A speech delivered last week at New York’s Museum of Television and Radio by Federal Communications Commission (FCC) Chairman William Kennard illustrates how “innovative regulation” is applied to digital television (DTV) broadcast. The title of the speech, “What Does $70 Billion Buy You Anyway?” was a reference to the Congressional spectrum giveaway for DTV broadcasters.

Instead of learning from the economic consequence of universal service, the FCC moves ahead with plans for more regulation and continues the cycle of new regulation to remedy the unintended consequences of past regulation.

Kennard correctly described Congress’ action as “the biggest government giveaway since Peter Stuyvesant,” but improperly referenced the sale of Manhattan to demand an expedited transition from analog to DTV on the part of broadcasters.

The spectrum giveaway was clearly a regrettable decision. By simply handing over valuable spectrum, the government disrupted the entire DTV market. Congress should have empowered the FCC to auction the spectrum as a clearly defined asset. Such an auction would have allowed firms to adequately evaluate risk and possible return and invest accordingly. Instead, the giveaway has led broadcasters to be complacent and occupy both the analog and digital spectrum allotted to them. This development has led regulators back to the drawing board.

Kennard does not lament the spectrum giveaway’s calamitous economic consequence. Instead, he blames the broadcasters for not utilizing the gift in the proper way. In language suggestive of a father disappointed in his child for not making good use of the bike he got for his birthday, Kennard blasted the broadcasters for “spectrum squatting” and not using the resource to “benefit the public interest.” To remedy these misdeeds, Kennard unveiled a three-part congressional strategy to compel the conversion to DTV. Provisions would include a mandate that all televisions produced after January 1, 2003 be DTV ready, elimination of the 85 percent requirement for DTV penetration before the old analog spectrum would be returned, and a tax on the use of analog spectrum called a “squatter’s fee.”

To rationalize such regulation, Kennard explains that spectrum is “the most valuable resource of the Information Age” and must be used efficiently to keep up with “Europe and Japan.” Those nations have “successfully unleashed the economic potential of 3G and the wireless web,” Kennard argues, and America must keep pace.

Of course, one reason for America’s comparably low mobile phone penetration rates and less developed wireless web is the mandate to subsidize wireline service. America’s complex subsidy system has made mobile phones a luxury, whereas in Europe they are simply the more affordable telecommunications option. Instead of learning from the economic consequence of universal service mandates, the FCC moves ahead with plans for more regulation and continues the cycle of new regulation to remedy the unintended consequences of past regulation.

On a few issues, Kennard has shown restraint and demonstrated faith in the market. But as Tuesday’s speech indicates, the FCC is still run by those enthralled with the economics of centralized planning. As a policy, “innovative regulation” may not be as bad as public financing and operation of broadcast, but it is not much better either. The FCC is trusted to act in the “public interest,” but when the “public” makes decisions about technology and investment through its government, that is, by definition, centralized planning. Innovative regulation may seem appealing as a “third way” to accommodate market forces and regulatory priorities, but in practice it leads to economic stagnation and failure.